Frustration. Coronavirus. We’re all of course frustrated. Frustrated that we can’t control events. Frustrated that we can’t go to the pub, or restaurants or meet our friends. Frustrated that, at the very least, we have to socially distance, if not self-isolate.
The current pandemic may well mean that businesses are looking to see what effect it has on their contractual rights and obligations.
Frustration is a doctrine of law which enables parties to be relieved from continued performance of a contract if supervening events make it physically or commercially impossible to fulfil the contract as originally envisaged.
Of course if the parties have foreseen the future event and allocated the risk in the contract, then the terms of the contract will prevail. In commercially sophisticated contracts, this is what is called a force majeure clause. The strict interpretation of such clauses will be the first step in the process rather than trying to apply the doctrine of frustration.
In one of the first cases, dating from 1863, a music hall owner was not liable to those who wanted to promote concerts once Herne Bay Steamboat Co v Hutton the building was destroyed by fire (Taylor v Caldwell). Of course, if the written terms had dealt with the matter, the outcome might have been different.
It is possible for cancellation of an expected event to bring the doctrine into play. In one case in 1903, the hirer of a balcony in Pall Mall to overlook the coronation procession of Edward VII in June of that year was not liable to pay when the King was taken ill and the procession postponed (Krell v Henry). The fact of the procession was not mentioned in the booking but it was clear from the circumstances that it was the foundation of the contract.
However, in the same year, a steamboat was hired from Herne Bay “for the purpose of viewing the Naval Review at Spithead and for a day’s cruise round the fleet”. Although review was cancelled, the fleet was still capable of being cruised around. So the contract was not frustrated (Herne Bay Steamboat Co v Hutton).
The generally accepted view of legal commentators that the coronation case was the exceptional one: the applicability of the doctrine of frustration needs to be limited so that it cannot be invoked by a party who simply wishes to escape from what proves to be a bad bargain.
It is also generally accepted that it is difficult to identify a single definite test for frustration. It involves:
An event which occurs after the formation of the contract and which strikes at the root of the contract beyond what the parties would have contemplated
Neither party being at fault
Further performance being rendered impossible, illegal or radically different from that planned by the parties.
The Courts talk of a “multi-factorial approach which has regard to the terms of the contract itself, its underlying factual context, the parties’ knowledge expectations assumptions and contemplations in particular as to risk at the time of the contract. Once the supervening event has occurred, the Courts look at the nature of that event and the objectively ascertainable calculations as to the possibility of future performance in the new circumstances. That is of course a polite way of saying that prediction as to the outcome in specific circumstances is somewhat uncertain.
Some possible examples:
An event needs to be cancelled at which a supplier has been booked to provide entertainment. Can the supplier claim damages and expenses?
The first thing to do is look at the terms of the contract. That may well provide the answer. If not coronavirus may well be a frustrating event. The Law Reform (Frustrated Contracts) Act 1943 may require the repayment of an advance deposit subject to the deduction of expenses incurred.
A customer has booked a party at a restaurant and then cancels because the government has advised against visits to restaurants. The restaurant owner has incurred costs from food suppliers. Can he claim against the customer?
Unless the ban imposed by law, and subject to the detailed terms and conditions of any contract, it is unlikely that frustration will apply: the customer will be liable.
If a ban is imposed on people travelling to work in an office, is the lease frustrated?
In principle, leases can be frustrated. But, subject to an analysis of the detailed terms and factual matrix, it is unlikely in the present circumstances.
It is clear that proving that a frustrating event has occurred is likely to involve a heavy burden. The most effective solution is to have available clear and well-drafted force majeure clauses in a contract. However, the present, virtually unprecedented, circumstances of coronavirus mean that frustration will have a role to play in various contexts both in law and in life.
One thing that is it not frustrating us at present is our ability to support clients. We are happy to review the terms of specific contracts and give an initial view without obligation.
